J.P.Infrastructure Pvt.Ltd., Ahmedabad V. The ACIT.,(OSD)-I,Circle-4, Ahmedabad

CO 158/AHD/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2608 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 09-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 143(3); 14A; 154

Judgement Text

I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR , AM AND MAHAVIR PRASAD , JM ] I.T.A. NO. 1 281 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 ASSTT. COMMISSIONER OF INCOME TAX (OSD) - I, CIRCLE 4, AHMEDABAD. . . . APPELLANT VS. J.P. INFRASTRUCTURE PVT. LTD., .... ... .. RESPONDENT 650/1, MAZDA HOUSE, PANCHVATI, AMBAWADI, AHMEDABAD 380 015. [P AN: AABCJ 4936 C] C.O. NO.158/AHD/2012 (IN I.T.A. NO. 1281/AHD/2012 ) ASSESSMENT YEAR: 2008 - 09 J. P. INFRASTRUCTURE PVT. LTD., .... ... .. APPELLANT (NOW KNOWN AS J.P. ISCON LTD), ISCON HOUSE, B/H. CITY BANK, C.G. ROAD, AHMEDABAD. [P AN: AABCJ 4936 C] VS. ASSTT. COMMISSIONER OF INCOME TAX (OSD) - I, CIRCLE 4, AHMEDABAD. .... . . RESPONDENT APPEARANCES BY: KAMLESH MAKWANA FOR THE REVENUE MANISH J. SHAH FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : 09.09 .2016 DATE OF PRONOUNC ING THE ORDER : 07 . 1 2 .2016 O R D E R PER PRAMOD KUMAR , AM : I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 2 OF 7 1 . BY W AY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 2 6 .0 3 . 201 2 , PASSED BY THE LEARNED CIT (A) , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2008 - 09. THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION AGAINST THE SA ME ORDER PASSED BY THE LEARNED C IT(A). 2. GRIEVANCE S RAISED IN THE APPEAL BY THE ASSESSING O FFICER ARE AS FOLLOWS : - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,19,20,337/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF T HE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 3 . GRIEVANCE S RAISED BY THE ASSESSEE IN IT S CROSS OBJECTION ARE AS FOLLOWS : - 1. THE CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.20,37,9 82/ - UNDER RULE 8D R.W.S. 14A OF THE I.T. ACT WITHOUT KEEPING IN MIND THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE. 4. TO ADJUDICATE ON THIS APPEAL AND THE CROSS OBJECTION, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE RELEVANT PREV IOUS YEAR, THE ASSESSEE HAD EARNED INCOME OF RS.11,581/ - AS DIVIDEND ON SHARES AND OF RS.7,89,555/ - AS SHARE OF INCOME FROM PARTNERSHIP FIRMS. ON THESE FACTS, THE ASSESSING OFFICER INVOKED SECTION 14A R.W.S. 8D AND PROCEEDED TO DISALLOW RS.5,72,51,945/ - . THIS AMOUNT WAS SUBSEQUENTLY AMENDED UNDER RECTIFICATION PROCEEDINGS UNDER SECTION 154 , AND TAKEN AT RS.2,19,20,337 / - . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 3 OF 7 CI T(A) WHO RESTRICTED THE DISALLOWANCE TO RS.20,37,982/ - AND JUSTIF IED THIS ACTION AS FOLLOWS : - AFTER GOING THROUGH THE FACTS AND THE CASE LAWS CITED BY THE APPELLANT, IT IS SEEN THAT AO HAS NEVER POINTED OUT AS TO HOW THE APPELLANT HAS MADE THE INVESTMENTS FROM THE BORROWED FUNDS WHICH IS REQUIRED AS PER THE SECTION 14 A OF THE IT ACT 1961. ON THE CONTRARY THE APPELLANT HAS DEMONSTRATED BEFORE THE AO REGARDING THE FLOW OF FUNDS INVESTED WITH THE SISTER CONCERN. THE ABOVE FACTS POINT THAT APPELLANT S INTEREST EXPENSES ARE ATTRIBUTABLE TO CONSTRUCTION BUSINESS AS THE INV ESTMENTS ARE FOR THE PURPOSE OF BUSINESS OF THE APPELLANT - COMPANY, HENCE, NO DISALLOWANCE UNDER RULE 8D(2)(II) R.W.S. 14A OF THE ACT I S REQUIRED. HOWEVER, DISALLOWANCE FOR ADMINISTRATIVE EXPENSES ETC. INCURRED FOR SUCH INVESTMENTS UNDER RULE 8D(2)(III) R. W.S . 14A OF THE ACT REQUIRES, THE SAME IS ALREADY COMPUTED BY AO IN ORDER U/S 154 DATED 13.02.2012 AT RS.20,37,982/ - , THIS DISALLOWANCE IS CONFIRMED. IN VIEW OF THE ABOVE, THE ADDITION MADE BY AO ON TH E GROUND OF DISALLOWANCE U/S. 14A R.W.R. 8D OF RS.5,52 ,13,963/ - (AS PER ORDER U/S. 154 DATED 13.02.2012, THE AMOUNT OF DISALLOWANCE IS REDUCED TO RS.2,19,20,337/ - DOES NOT SUSTAIN, HENCE, THE SAME IS DELETED AND DISALLOWANCE FOR ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III) OF RS.20,37,982/ - IS CONFIRMED. A CCORDINGLY, I DIRECT THE ASSESSING OFFICER TO GIVE RELIEF TO THE APPELLANT - COMPANY. GROUND OF THE APPELLANT IS PARTLY ALLOWED. 5. NONE OF THE PARTIES IS SATISFIED, AND, THUS, BOTH THE PARTIES ARE IN APPE A L BEFORE US. 6 . WE HAVE HEARD THE RIVAL CONTENTION S , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. WE FIND THAT , AS LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY POINTS OUT, THE DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE RELATED T AX EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. THIS IS WHAT CO - ORDINATE BENCHES HAVE CONSISTENTLY HELD TO BE THE CORRECT LEGAL POSITION. IN THE CASE OF AUSOM INTERNATIONAL PVT . LTD . VS. ITO (ITA NO.261/AHD/2012; ORDER DATED 6 TH APRIL, 2016), THE C O - ORDINATE BENCH HAS HELD AS FOLLOWS : - 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. SOLITARY GRIEVANCE OF THE ASSESSEE IS AGAINST THE ACTION OF LD. CIT(A) CONFIRMING THE ADDITION OF RS. 19,67,261/ - ON ACCOUNT OF DISALLOWANCE U /S 14A OF THE ACT I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 4 OF 7 R.W.RULE 8D OF THE IT RULES. FROM GOING THROUGH THE ASSESSMENT ORDER WE OBSERVE THAT ASSESSEE HAS EARNED DIVIDEND INCOME AT RS.2,07,300/ - AND IT IS ALSO UNDISPUTED FACT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF SHARES AND SEC URITIES. FROM GOING THROUGH THE DECISION OF THE CO - ORDINATE BENCH REFERRED AND RELIED ON BY LD. AR IN THE CASE OF M/S K. RATANCHAND & CO. VS. ITO (SUPRA), WE FIND THAT THE ISSUE RAISED IN THE APPEAL BEFORE US IS FULLY COVERED BY THE DECISION OF THE CO - ORDI NATE BENCH WHEREIN SIMILAR ISSUES CAME UP BEFORE THE TRIBUNAL AND IT HAS BEEN HAVE HELD THAT IN SUCH CASES DISALLOWANCE U/S 14A SHOULD NOT EXCEED EXEMPT INCOME EARNED BY THE ASSESSEE. WHILE DECIDING SO CO - ORDINATE BENCH HAS OBSERVED AS UNDER : - 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS AVAILABLE RECORDS INCLUDING PAPER BOOK AND CASE LAWS RELIED BY THE LD. AR. ADDITION OF RS.4,04,204/ - HAS BEEN MADE BY THE AO AGAINST DIVIDEND INCOME OF RS.58,963/ - . NOTHING CONTRARY HAS BEEN BROUGHT TO THE FACT THAT ASSESSEE IS A DEALER IN SHARES AND PROFIT IN SHARE BUSINESS HAS BEEN SHOWN BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS . A.O. HAS NOT MADE ANY SPECIFIC FINDING TO SUPPORT THE DISALLOWANCE MADE BY HIM. FURTHER IN CASE OF ZAVERI VIRJIBHAI MANDALIA VS. ACIT IN ITA NO.469/AHD/2007 FOR AY 2004 - 05, THE CO - ORDINATE BENCH HELD WHERE THE ASSESSEE IS A DEALER IN SHARE AND PROFIT IN SHARE BUSINESS IS TAXED AS BUSINESS INCOME SECTION 14A OF THE ACT DOES NOT APPLY. THE RELEVANT PORTION OF THE DECISION IS REPRODUCED BELOW - 12. IN THE PRESENT CASE BEFORE US IT IS SEEN THAT THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, THE INCOME FROM WHICH IS ALSO ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . THE ASSESSEE HAD BORROWED FUNDS FROM KOTAK MAHINDRA INVESTMENT LTD. FOR THE PURPOSE OF PURCHASE OF UNITS AND SHARES WHICH IN FACT HAVE BEEN UTILIZED FOR PURCHASE OF UNITS AND SHARES. THE ASSESSEE HAS PAID INTEREST ON THE AMOUNT BORROWED F ROM KOTAK MAHINDRA INVESTMENT LTD. THESE FACTS HAVE NOT BEEN CONTROVERTED BY REVENUE. THE ASSESSEE HAS INCURRED INTEREST EXPENSES FOR PURCHASE OF SHARES AND UNITS OF MUTUAL FUND AND THE BORROWED FUNDS HAVE BEEN USED FOR ACQUISITION OF UNITS ARE IN DISPUTE. THE AO ALSO HELD THAT ASSESSEE IS IN THE BUSINESS OF PURCHASE/SALE OF SHARES AND WHILE FRAMING ASSESSMENT UNDER SECTION 143(3) THE LOSS OF RS.1,51,21196 INCURRED ON THE SALE/PURCHASE OF UNITS HAS BEEN TREATED AS BUSINESS LOSS. IN VIEW OF THE AFORESAID FAC TS, IT CAN BE STATED THAT ASSESSEE IS IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. ONCE THE PURCHASE AND SALE OF SHARES IS HELD TO BE A BUSINESS ACTIVITY, THE INTEREST PAID THEREON HAS TO BE TREATED AS BUSINESS EXPENSES IN VIEW OF THE HON BLE HIGH COURT DECISION IN THE CASE OF ADDL. CIT VS. LAXMI AGENTS (SUPRA). THUS FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AND THE HON BLE HIGH COURT, WE ARE OF THE VIEW THAT IN THE PRESENT FACTS OF THE CASE, THE INTEREST EXPENSES INCURRED BY THE ASSESSEE HAVE TO B E TREATED AS BUSINESS EXPENSES AND NO DISALLOWANCE CAN BE MADE UNDER SEC.14A. WE ACCORDINGLY DIRECT THE DELETION OF THE I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 5 OF 7 DISALLOWANCE MADE BY AO. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 7. FURTHER IN T HE CASE OF JIVRAJ TEA LTD. VS. DCIT, CIRCLE - 1, SURAT IN ITA NO.866/AHD/2012 AND OTHERS, THE CO - ORDINATE BENCH HELD THAT DISALLOWANCE UNDER SECTION 14A CANNOT BE MORE THAN THE EXEMPT INCOME. THE RELEVANT PORTION OF THE DECISION IS REPRODUCED BELOW - 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE RECEIVED EXEMPT DIVIDEND INCOME OF RS.900/ - . THE ASSESSING OFFICER WAS OF THE OPINION THAT EXPENDITURE INC URRED FOR EARNING THE EXEMPT DIVIDEND INCOME WAS NOT ALLOWABLE TO THE ASSESSEE AND THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE TOWARDS THE EARNING OF THE EXEMPTED DIVIDEND INCOME, HE BY INVOKING THE PROVISIONS OF SECTION 14A COMPUTED EXPENDITURE ATTRIB UTABLE TO THE EARNING OF EXEMPT DIVIDEND INCOME UNDER RULE 8D OF THE INCOME - TAX RULES AND MADE DISALLOWANCE FOR INTEREST EXPENDITURE OF RS.1,49,710/ - AND ADMINISTRATIVE EXPENSES OF RS.12,750/ - . THE ASSESSEE UNSUCCESSFULLY APPEALED BEFORE THE CIT(A). THE CO NTENTION OF THE ASSESSEE IS THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF SHARE CAPITAL AND FREE RESERVES AS ON THE DATE OF BALANCE - SHEET WAS RS.17,86,69,501/ - AND THE INVESTMENTS AT THE END OF THE YEAR WAS AT RS.1,26,00,538/ - ONL Y. THEREFORE, IN VIEW OF THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF HITACHI HOME AND LIFE SOLUTIONS (I) LTD. (SUPRA) AND TORRENT POWER LTD. (SUPRA), NO DISALLOWANCE TOWARDS INTEREST EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME CAN BE M ADE. REGARDING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.12,750/ - , WE FIND THAT THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF A.C.I.T. VS. PUNJAB STATE COOP & MARKETING FED. LTD. IN ITA NO. ITA NO.548/CHD/2011 FOR AY 2007 - 08 HAS HELD THAT DI SALLOWANCE U/S. 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT DIVIDEND INCOME. THEREFORE, WE RESTRICT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES TO RS.900/ - ONLY, BEING THE EXEMPT DIVIDEND INCOME EARNED BY THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. THE FACTS OF THE CASE OF ASSESSEE ARE WELL COVERED BY THE ABOVE REFERRED JUDICIAL PRONOUNCEMENTS OF THE CO - ORDINATE BENCHES. SO MUCH SO THAT IT IS UNDOUBTED THAT ASSESSEE IS A DEALER IN SHARES, TRADING OF SHARES HAS BEEN SH OWN AS INCOME FROM BUSINESS, STOCK IN TRADE IN SHARES IS AT RS.41,16,992 INVESTMENT IN SHARES NOT HELD FOR BUSINESS ARE ONLY RS.51,000, AND DIVIDEND INCOME EARNED DURING THE YEAR IS RS.58,963. HOWEVER, ASSESSEE HAS MAINTAINED SAME BOOKS OF ACCOUNTS FOR HIS BUSINESS OF TRADING IN CLOTH, TRADING IN SHARES, COMMISSION INCOME, INCOME FROM REAL ESTATE AND EXEMPT INCOME. THERE IS NO BIFURCATION AVAILABLE ON I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 6 OF 7 RECORD TO SEGREGATE THE ENTIRE EXPENSES INCURRED ON THE TYPE OF BUSINESS ACTIVITIES CARRIED ON AND SOME ELE MENT OF COST FOR EARNING EXEMPT INCOME CANNOT BE IGNORED IN THESE CIRCUMSTANCES. THE ASSESSEE HAS DEMONSTRATED THAT IT HAS CARRIED OUT THE BUSINESS ACTIVITY OF SALE AND PURCHASE OF SHARES. THE REVENUE ON THE OTHER HAND COULD NOT PLACE ANY CONTRARY MATERIAL ON RECORD. THEREFORE, IN THE LIGHT OF DECISION OF THE CO - ORDINATE BENCHES WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE DIVIDEND SO EARNED IS INCIDENTAL TO NORMAL BUSINESS ACTIVITIES OF THE ASSESSEE. MOREOVER, THE AO HAS MADE DISALLOWANCE OF RS.4,04,204/ - WHEREAS THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS.58,963/ - . EVEN ASSUMING THAT SOME EXPENDITURE IS REQUIRED TO BE DISALLOWED BUT SUCH DISALLOWANCE SHOULD NOT EXCEED THE QUANTUM OF EXEMPT INCOME. THEREFORE, IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCHES WE HEREBY HOLD THAT THE ADDITION UNDER SECTION 14A CANNOT BE MORE THAN THE EXEMPT INCOME AND SHOULD THEREFORE BE RESTRICTED TO RS.58,963/ - . THIS GROUND OF T HE ASSESSEE IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF M/S K. RATANCHAND & CO. VS. ITO (SUPRA), WE ARE OF THE VIEW THAT ON THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, DISALLOWANCE U/S 14A OF TH E ACT SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AT RS. 2,07,300/ - . 8 . WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO - ORDINATE BENCH. 9 . RESPECTFULLY FOLLOWING THE ABOVE CO - ORDINATE BENCH DECISION, WE HOLD THAT THE DISALLOWANCE UNDER SECTION 14A MUST STAND RESTRICTED TO RS.8,01,136/ - . TO THIS EXTENT, THE CROSS OBJECTION IS ALLOWED, AND THE RELIEF GRANTED BY THE CIT(A) IS CONFIRMED. 10 . IN THE RESULT, THE APPEAL IS DISMISSED AND THE CROSS OBJECTION IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 7 TH DAY OF DECEMBER , 2016. SD/ - SD/ - MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 7 TH DAY OF DECEMBER , 2016. I.T.A. N O. 1 281 /AHD/201 2 & C.O. NO.158/AHD/2012 ASSESSMENT YEAR: 200 8 - 09 PAGE 7 OF 7 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD